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How a Sinking Dollar Affects You

What it means for travelers, consumers and investors.

January 31, 2010

Travelers: When the dollar sinks, it buys fewer yen, euros and other currencies. The result: Travel overseas gets more costly. In early 2009, it cost $3.45 in dollar terms to buy a Big Mac in Brazil, according to the Economist. Recently, it cost $4.70 in U.S. dollars.

Consumers: A sagging buck is inflationary. When the dollar falls, a foreign company that sells in the U.S. sees its dollar earnings convert into a lesser amount of its own country’s currency. Often, the company will try to offset those currency losses by raising prices.

Investors: When you own foreign bonds or currencies, the benefits of a dwindling buck are clear: Money invested abroad translates into more dollars. It’s trickier, though, with stocks because of crosscurrents between the impact of currency moves on investments and their impact on corporate profits. For example, a European company with operations in the U.S. may lose some profits because the dollars it earns here translate to fewer euros. But its stock, priced in euros, is worth more to a U.S. investor when the dollar falls.